Defense/Aerospace Industries

[DewDiligence]

Boeing Hedges on End-2010 Dreamliner Delivery Date

http://online.wsj.com/article/SB10001424052748704682604575369033911439758.html

›JULY 16, 2010
By DOUG CAMERON And PETER SANDERS

Boeing Co. says delivery of its new 787 aircraft could slip into next year, though the company is still hoping it can send the jet to its first customer by year's end.

The cautious new guidance for delivery of the much-delayed Dreamliner stems from issues with testing rather than the aircraft, according to Scott Fancher, head of the 787 program, who spoke with reporters Thursday.

Boeing's first customer for the new jet, All Nippon Airways Co., has already waited 2 1/2 years for the plane after five separate technical delays.

"We are talking about flight-test monitoring systems," Mr. Fancher said Thursday, adding that Boeing was pleased with a fix to a problem with the plane's horizontal stabilizer that temporarily halted its test program.

The announcement came on the eve of the Farnborough Air Show in the U.K., and a little over a year after Boeing stumbled at last year's Paris Air Show by announcing the plane was ready to make its first flight on June 30, 2009. Days later, it announced another six-month delay.

It's the first time Boeing has acknowledged that problems encountered with production and quality issues could hurt the latest schedule laid out after the plane's first flight last December.

An All Nippon executive said in April that the new plane may not start passenger service until next March. Mr. Fancher said Thursday that Boeing remains in "constant contact" with the Japanese carrier.

Boeing has yet to reveal how much the delays will cost, but analysts estimate that it faces billions of dollars in payments to compensate airlines and to reimburse suppliers.

Mr. Fancher declined to comment on how much of a buffer Boeing had left to meet its existing year-end target.

Boeing will also halt deliveries of 787 components to its final assembly plant in Everett, Wash., for about six weeks later this year to give its network of global suppliers a chance to catch up on work and address continuing quality issues.

It's the second time this year that Boeing has halted deliveries along its supply chain as it struggles to smooth out a system that sees much of the work on the high-tech new jet completed by suppliers in Italy and Japan, as well as elsewhere in the U.S. The outsourcing model has bedeviled the 787 program for years. Parts shortages and shoddy manufacturing work at various suppliers has forced Boeing to slow the production process at various points and required the company to fix mistakes after some jets have been fully completed.

Boeing has also spent more than $1 billion purchasing the operations of struggling vendors in South Carolina and has sent hundreds of its own employees abroad to closely monitor its suppliers' work.

Company executives in the past have said they overreached on the new manufacturing method used with the 787, but they remain committed to the outsourcing model.

While details of 787 compensation remain undisclosed, the potential profit from the program will play a role in when and how it decides whether to revamp or replace its 737 and 777 models.

"A decision will be made by the end of the year," said Randy Tinseth, vice president marketing for Boeing's commercial aircraft division, on an earlier press call on Thursday.‹